Vaccines are being rolled out, economies are reopening and the recovery is coming. However, it won’t be the same everywhere.
Household consumption, by far the biggest part of U.S. and European spending, has a very solid outlook in the U.S., but less so in Europe. Fiscal and monetary policies left American households with more income and wealth, while European households have instead borne some losses—particularly the poorer ones. In the short term, a consumption boom is likely in the U.S., while a more normal recovery is in the cards for Europe. Inflation dynamics should diverge between the U.S. and the EU, and with it, higher U.S. interest rates should lead the dollar to appreciate against the euro.